There is a good deal of evidence that we are now a little past "peak oil". Many of us find it doesn't feel quite like we had imagined.

A lot of us had expected that peak oil would be basically a liquids fuels crisis, caused by geological limits. We expected that the solutions of the Department of Energy's Hirsch Report would be sufficient to forestall a crisis, especially if we had started 20 years ago, instead of now. These solutions included things like more oil from tar sands, improving automobile efficiency, and electrification of transport.

Now, when we seem to be at peak oil, we find the current situation feels a lot more like a "box" caused by limits to growth, rather than a liquid fuels crisis. The limits are of many forms--not just geological limits relating to oil--but other resource limits as well, such as fresh water, and concerns about climate change and the environment. The financial system is even behaving strangely.

Getting the machine to spit out a headline number for Value at Risk was straightforward. But deciding what to put into the model was another matter. The art of gauging Value at Risk required imagining the severity of the shocks to which the portfolio might be subjected. It required knowing what new variables to add in response to financial innovation and unfolding events. Doing this right required a thoughtful and creative practitioner. Value at Risk, like dynamite, can be a powerful tool when in the right hands. Placed in the wrong hands—well, you know.

These simple models should have been regarded as no more than starting points for serious thinking. Instead, those responsible for making key decisions, institutional investors and their regulators alike, took them literally. This reflected the seductive appeal of elegant theory. Reducing risk to a single number encouraged the belief that it could be mastered. It also made it easier to leave early for that weekend in the Hamptons.

For better or worse, the authorities have decided to bail out their financial systems with taxpayer money. Almost all the affected countries should be able to afford to do this, at least on the IMF’s numbers. So now, having made the fundamental decision to prevent bankruptcy, they must return their financial systems to health as swiftly as they possibly can.

Even so, that will prove to be a necessary, not a sufficient, condition for a return to robust economic health. The overhang of debt makes deleveraging inevitable. But it has hardly begun. Those who hope for a swift return to what they thought normal two years ago are deluded.

There was a time when I disagreed with the inflationistas and the gold bugs. In my view, they did not anticipate the deflationary flash flood that would rip through the global economy once history's biggest credit bubble began to burst, and they failed to understand that this was just the set-up needed to transform the last of the allegedly prudent policymakers into full-on Mugabes-in-the-making.

Now, though, as some deflationistas grow ever more confident that we are set for a replay of what took place 80 years ago, I am in the process of switching sides. As I see it, the combination of intellectual hubris and a relentless determination by central bankers and politicians to beat the GD 2.0 rap, as well as an increasingly contagious urge to embrace all manner of fiscal insanity, suggest we are nearing the point where people will begin to lose faith in those who control the pursestrings -- and the printing presses....

In the 1920s, the financial sector was far less intertwined with the poltical apparatus than it was after the reforms that emerged from the Pecorra Commission and the New Deal. This meant that lawmakers were less compromised by ties to Wall Street, less involved with the crisis. They could take an outsider's view because they were outsiders.

Ironically, the very reforms of those outsiders transformed them into insiders. "Launching Pecora II would automatically raise this question: Whatever happened to the reforms put in place after the first go-round?" Thomas Frank asks.  The answer to that question is that the reforms were self-devouring because the political dynamics of active regulation are a recipe for corruption and capture. Like Orwell's farmers and the pigs sitting at the table playing poker, it wasn't too long before it became hard to tell who was playing which role in the relationship. It really shouldn't be a surprise that politicized finance gave the system swine flu.

The Swat Taleban added fuel to the fire by inviting Osama Bin Laden to settle in Swat, indicating their complete control of the valley.

On 20 April, Sufi Muhammad, a radical leader who the government and the army have termed as ''a moderate" and whose son in law Fazlullah is the leader of the Swat Taleban, said that democracy, the legal system of the country and civil society should be disbanded as they were all ''systems of infidels".

The Taleban have now infiltrated western and southern Punjab province with the help of Punjabi extremist groups, the second largest city of Lahore and the southern port city of Karachi.

Do you think this crisis is just going to solidify the advantages of China and these other Asian and Southeast Asian economies?

Well, again, throughout history, the center of the world has shifted to where the capital is, where the assets are. You don't see any period in history where things are shifting to the debtors, and America's the largest debtor nation in the history of the world. Unless something's different this time, unless the world's changed very very dramatically, the center of the influence, the center of power, the center of the earth, the center of the globe, is going to be shifting towards Asia, because that's where all the money is. Have you ever heard of anybody saying, "Let's go to where all of the debtors are"? It just doesn't happen that way.

In his 1961 farewell address, President Dwight Eisenhower warned America to “guard against the acquisition of unwarranted influence” by the “military industrial complex” for the same reason Machiavelli cautioned heads of state of his day to beware of advisers who “in times of peace, desire war because they are unable to live without it.” In ’61, Eisenhower admonished that the “economic, political, even spiritual” influence of America’s new war industry was “felt in every city, every statehouse, every office of the federal government.” A decade into the new American century, militarism has woven itself into the very fiber of our society. Political careers and regional economies are wholly dependent upon it. The defense industry has transformed America into warfare welfare state, and it doesn’t bother making a secret of it.

Telegraph 26 Apr 2009 — The world is running out of capital. We cannot take it for granted that the global bond markets will prove deep enough to fund the $6 trillion or so needed for the Obama fiscal package, US-European bank bail-outs, and ballooning deficits almost everywhere.

Unless this capital is forthcoming, a clutch of countries will prove unable to roll over their debts at a bearable cost. Those that cannot print money to tide them through, either because they no longer have a national currency (Ireland, Club Med), or because they borrowed abroad (East Europe), run the biggest risk of default.

If the economic numbers are to be believed the plunge of this downturn is over.  That precipitous fall that began in late August, accelerated through September, and continued unabated.   However, the consensus is that this is not merely a pause in the plunge; but it is also not a bottom.  We are not in a downturn that has a sharp bounce upwards, the consensus argues; but will, as with the last two downturns in the US, have a long period where the economy will scrape along the bottom.

For the average person, however, it is not going to feel like that at all.  Every indicator is that jobs are being destroyed at a record pace; and that the month of April, like the string of months before it, will see 500,000 to 700,000 payroll positions lost on a seasonally adjusted basis.  For the average American the economy is the labor market, and that is not about to see a roaring back the way the stock market has.  What the consensus is talking about is that the financial system's willingness to do business with itself has been restored, and that the deep liquidity is willing to invest shiftable funds in the equity markets and into resources.

Pew Research Center via Option Armageddon

"The United States participated actively and effectively in the negotiation of the Convention. It marks a significant step in the development during this century of international measures against torture and other inhuman treatment or punishment. Ratification of the Convention by the United States will clearly express United States opposition to torture, an abhorrent practice unfortunately still prevalent in the world today.

The core provisions of the Convention establish a regime for international cooperation in the criminal prosecution of torturers relying on so-called 'universal jurisdiction.' Each State Party is required either to prosecute torturers who are found in its territory or to extradite them to other countries for prosecution."

...Sachs stressed that the economy means more than simple dollars and cents: “It’s the life-and-death struggle of the poor, and the plight of the planet. ” He compared the current economic crisis to a slot machine turning up three lemons, and defined the economy by three “uns”: It is unstable, unfair, and unsustainable.

The instability comes as a result of what Sachs calls an “odd period” in American society, an era that began in the 1980s with Ronald Reagan’s statement “The government is not the solution but the problem. ” Deregulation became the norm, as the cutting back of government services, the lowering of taxes, and the capping of public expenditures were seen as routes to economic prosperity.

With voter rage on the rise, the political class can no longer ignore calls for reform.

Salon— April 24, 2009 | In 2006, journalist Christopher Hayes wrote a little-noticed article for In These Times magazine about a proposal in Oregon to crack down on predatory lending. The initiative had become so popular that conservative legislators supported it fearing that if it were put on the state's ballot, the resulting gusher of grass-roots support would not only ratify the measure, but depose the bank-allied Republican Party, too.

Check it out here.

UNESCO and 32 partner institutions today [2009.04.21] launched the World Digital Library, a Web site that features unique cultural materials from libraries and archives from around the world. The site includes manuscripts, maps, rare books, films, sound recordings, prints and photographs. It provides unrestricted public access, free of charge, to this material.

Mission
The World Digital Library (WDL) makes available on the Internet, free of charge and in multilingual format, significant primary materials from countries and cultures around the world.

That is the analysis by an increasingly vocal and influential professor at MIT, Simon Johnson. In an interview with the Huffington Post, Simon Johnson, the former chief economist at the International Monetary Fund, just like the emerging markets he has spent his life studying, the U.S. has created a system whereby Wall Street "oligarchs" have monopolized and cannibalized the economy. At the same time, Washington regulators have been rendered ineffective, seduced by their aura of wealth and power.

Johnson's solution is, in part, to use anti-trust laws to break up these too-big-to-fail institutions, and for regulators to intensify their oversight of the smaller banks that result.

The 10-year budget framework that President Barack Obama released in February, called A New Era of Responsibility,  is as much a philosophy of government as a fiscal action plan. Gone is the Ronald Reagan view that government is not a solution to our problem; government is the problem.  Obama rightly sees an expanded role for government in allocating societys resources as vital to meeting the 21st century challenge of sustainable development.

The scientific discipline known as public economics describes why government is needed alongside markets to allocate resources. These reasons include: the protection of the poor through a social safety net; the correction of externalities such as greenhouse gas emissions; the provision of merit goods such as health care and education that society deems to be essential for all of its members; and the financing of scientific and technological research that cannot be efficiently captured by private investors. In all these circumstances, the free-market system tends to underprovide the resource in questionwhether income support for the poor, abatement of carbon emissions, low-cost primary health care, or R&D for renewable energy.  

Financial Times: April 21 2009 — The past two years have not enhanced the reputation of economists. Mostly they failed to point out fundamental weaknesses of financial markets and did not foresee the crisis, and now they disagree on appropriate policies and on the likely future course of events. Although more economic research has been done in the past 25 years than ever before, the economists whose names are most frequently referenced today, such as Hyman Minsky and John Maynard Keynes, are from earlier generations.

Let’s say this slowly: the Bush administration wanted to use 9/11 as a pretext to invade Iraq, even though Iraq had nothing to do with 9/11. So it tortured people to make them confess to the nonexistent link.

There’s a word for this: it’s evil.

Grand Unified Scandal

We must establish a 'fiduciary society.'

...Relying on Adam Smith's "invisible hand," through which our self-interest advances the interests of society, we have depended on the marketplace and competition to create prosperity and well-being.

But self-interest got out of hand. It created a bottom-line society in which success is measured in monetary terms. Dollars became the coin of the new realm. Unchecked market forces overwhelmed traditional standards of professional conduct, developed over centuries.

The result is a shift from moral absolutism to moral relativism. We've moved from a society in which "there are some things that one simply does not do" to one in which "if everyone else is doing it, I can too." Business ethics and professional standards were lost in the shuffle.

The great Hyman Minsky postulated that capitalism was "flawed". Over the years I've taken exception to this particular view, countering that capitalism is more appropriately described as "vulnerable". As part of this line of analysis, I have used the analogy of the human eye. We would not think of its delicate nature and susceptibility to injury as some "flaw" in our eye's design. Instead, this inherent vulnerability is fundamental to the nature of this important organ's functionality. We worry much less about our elbows, but they're not going to do an adequate job detecting light and transmitting visual signals to our brains.

1. "This was a Black Swan."

2. Free Trade created this problem.

3. "The Worst is Behind Us."

4. We are in for an "L" shaped-recovery.

5. Populism is dead.

FDL

Has Team Obama figured out that it will not be possible politically and financially to continue the bailouts and stimulus?

Obama: 'We are on an unsustainable course'

US President Barack Obama, faced with mushrooming budget deficits, announced he will convene his first full cabinet meeting Monday and ask his secretaries for specific plans to cut spending.

He also added to his administration two new officials, Jeffrey Zients and Aneesh Chopra, whose task will be to streamline processes, cut costs and make the government more efficient.

"And this Monday, at my first, full cabinet meeting, I will ask all of my department and agency heads for specific proposals for cutting their budgets," Obama said in his weekly radio address Saturday.

April 16 (Bloomberg) -- The Obama administration’s plan to fix the U. S. banking system is destined to fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.

“All the ingredients they have so far are weak, and there are several missing ingredients, ” Stiglitz said in an interview. The people who designed the plans are “either in the pocket of the banks or they’re incompetent. ” The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street.

While an emphasis on reviving banks and an injection of public spending are both important, the trouble is that neither one directly addresses the main source of global deflation, which is that global imbalances are no longer being recycled effectively. Because US households and banks are now bankrupt, the United States has lost much of its capacity to absorb and recycle foreign trade surpluses. That, in a nutshell, is the driving force behind the global deflationary trend.

Substituting massive public spending for private consumption and putting banks on life support are at best stopgap measures, and it is unlikely that they will bring back the ability to recycle trade surpluses. Even in the best-case scenario, where confidence in the dollar holds up, the broken machinery that produced the world's credit supply cannot not be reassembled because too many borrowers and intermediaries are insolvent. There is no easy way to make the debt overhang go away, and neither tax cuts nor cleansing banks of toxic assets will bring about a lasting increase in private consumption.